Merits of Price System

Here Information help us to understand about the Merits of Price System in detailed.

Merits of Price System:

Now we will discuss about the advantages of price system in a free market economy in detailed:

It is an automatic mechanism : No administrative appratus is required to operate the price system, goods and services are produced according to demand, in right quantity and at right time. That is why, 18th century economist, Adam smith, describes price system as an 'invisible hand' which acting through each person's self interest and competition resulting there from, provides those goods that society wants, in the quantity that society desires, at the prices which society is prepared to pay.

It offers freedom to consumers : In a free market economy, consumers are allowed to freely express their preferences. They determine what is to be produced and how much. The producers who fail to respect their orders bear losses and are removed from the market.

It offers freedom to the producers : Here The producers are free to produce any commodity in any quantity and with any method of production. However, the forces of competition keep a check on their actions so that they cannot indulge in malpractices to exploit buyers or workers.

Prices convey information to the producers and consumers : Here, prices convey information to the producers and consumers about the changes taking place in the economy. They take decisions on the basis of prices and price changes.

Prices co-ordinate the decisions of the producers and consumers in the market : Higher prices tend to encourage production and discourage consumption.

Economist, Adam Smith saw the harmony between private profit and public interest : Here he argued that "every individual, by pursuing his own interest, promotes that of the society more effectually than when he really intends to promote it."